Maris Marble Company Case

The company have generated very low operating cash flows, which is caused by a negative net income(16, 55) in 94,95, again with sales going down and cost of goods sold increasing. The company current ratio (2.3, 2.1, 2.5) in 93, 94, 95 are indicating satisfactory but when analyze quick ratio (1.1, 1.1, 1.3), and we also know that sales are down which mean more inventories. Now the account payable days has been increasing (49, 62, and 66). They have been delaying there payment which mean more cash on

Liquidity is important for any firm as it is an assessment of the ability to pay its' liabilities in the short term. There are two main liquidity ratios: the current and the quick ratio. The current ratios divides the current assets by the current liabilities to assess how many times the current assets can pay the current liabilities (Elliott and Elliott, 2011). Traditional ratios are usually in the region of 1.5, but this may vary depending on the industry and nature of the business (Elliott and Elliott, 2011). The current ratio is shown in table 1.

In order a company to have a solid financial health, the quick ratio must be 1 time, which is a sign that the liquidity level of a company is high. In J.B Hunt, the quick ratio increased from the last year, which shows that liquidity level of the company is high. It has the ability to pay off short-term obligations without the base on the sale of its

1. You are analyzing a company that has cash of $2,000, accounts receivable of $3,700, fixed assets of $10,900, accounts payable of $6,600, and inventory of $4,100. What is the quick ratio?

Working capital is the money that a company has after paying off its current liabilities and with which it can finance its operating and working capital requirements. The higher a number the better a company is able to pay off its debt and have cash for meeting its financial obligations. The current ratio is used to gauge a company 's ability to pay back its short-term liabilities (debt and payables) with its short-term assets (cash, inventory, receivables). The higher the current ratio, the more capable the company is of paying its obligations. A ratio under 1 suggests that the company would be unable to pay off its obligations if they came due at that point. The current ratio denotes the efficiency of a company 's operating cycle or its ability to turn its products into cash, which is a key requirement for business success. Quick ratio is an indicator of a company 's short-term liquidity. The quick ratio measures a company 's ability to meet its short-term obligations with its most liquid assets, essentially cash and cash equivalents. The higher the quick ratio, the better the financial position of the company in terms of its ability to meet its liabilities.

Now as far as the company’s cash flow is concerned, the company has been suffered with very weak cash flows because inventory and receivables have increased which result in negative cash flows and due to increased in accounts payable resulting in positive cash flow thus overall cash generated from operations remain intact. However as mentioned above it is operational inefficiency due to delay in collection from customers resulting in delay in payments to creditor. The current ratio is at satisfactory level.

The company’s current assets are just over two times its current liabilities, giving it a current ratio of 2.08. This is a sign of financial strength. The Quick ratio (current assets-inventory then divided by current liabilities) is 0.96. This measures the company’s ability to come up with cash in a matter of hours to days. It has working capital (current assets-current liabilities) of $7,508,998. With a working capital per dollar of sales of 15%. This is adequate given the high inventory turn.

Although the company’s liquidity ratios have dropped their ratios are still outperforming their RMA industry average by 15%. The decrease in the company’s liquidity ratios is the result of their current liabilities increasing 6.5% from fiscal year 2014 and their current assets only increasing 0.7% from fiscal year 2014. The company saw a decrease in cash and equivalents, accounts receivable, and income tax receivable in 2015. While also increasing accounts payable, accrued expenses, and deferred revenue and other liabilities. The combination of the movement in these accounts result in lower liquidity ratios for fiscal year 2015.

In the year 2014 the cash ratio was high which suggests that the company had more liquid assets in the year 2014 than the year 2015. As this is the ratio of liquid assets to the current liabilities of a company. This means in the year 2015, the liquidity of the company decreased and it was in a more efficient position in the year 2014 to pay its short term debt.

This ratio is similar to current ratio, except that it excludes inventory from current assets. Inventory is subtracted because it is considered to be less liquid than other current assets, that is, it cannot be easily used to pay for the company’s current liabilities. A company having a quick ratio of at least 1.0, is considered to be financially stable. It has sufficient liquid assets and hence, it will be able to pay back its debts easily (Qasim Saleem et al., 2011).

When calculating the liquidity for the company, I used two ratios focusing on the company’s short term of financial strength and primarily on the current assets, liabilities, and the inventories. In 2014 the current assets for the company was $1,377,165 and the current liabilities in the same period were $457,603. The previous period current assets were $1,496,863 and the current liabilities were $568,209. Using the current ratio to calculate how many dollars in assets are likely to be converted to cash within a year for that period in enabling the company to pay debts that come due in the same year. In both 2014 and the previous period the company’s

The current ratio has slightly decreased by 0.7 cents from 4.2:1 to 3.5:1. The main reason for this trend, because the current assets contained too many accounts receivables and inventories, and even though it was no cash available in 2015. Therefore, it indicates indirectly the company liquidity was very poor. In fact, majority of companies expected a healthy current ratio of 2:1, which reflects they should be able to meet its current debts with current assets as the trend is satisfactory (Smart, Awan, & Baxter, 2013).

From MSN Money the industry standard current ratio is 2.01 which is 0.58 times higher than Caterpillar Inc. Accounts receivable turnover is another liquidity ratio used by CPA’s to evaluate the collection of the company’s accounts receivable in one year. The disclaimer with this ratio is the average gross receivable is used on an annual basis. To prevent the number from being skewed by seasonal activity it is best to use as much information as possible that you have access to; quarterly, monthly, or weekly will give you a more accurate picture. Caterpillar’s accounts receivable turnover ratio has increased over the past three years by 0.8 times. The positive trend is great and shows that the company is making progress in collecting their receivables to help the liquidity. Unfortunately they are still 0.64 times slower than the industry so they still have room for improvement. The next ratio for liquidity is the quick ratio or also known as the acid-test ratio. This takes the current ratio a step further because it shows the immediate position of the company in regard to meeting current liabilities. This ratio removes inventory because although it is an asset it could take time to sell off the inventory so we cannot count this as immediate cash to fulfill current liabilities if needed in an emergency situation. Caterpillar’s quick ratio has declined from 2010 to 2012 and is extremely low when compared to the industry. The industry standard

a) Current ratio Abercrombie and Fitch has $1,49 of Current Assets to meet $705 of its Current Liability. It means that the company can solve its debt with its assets. In addition, we can notice that the industry ratio is 2.11, then Abercrombie and Fitch has a worse current ration than the industry, which is 2.30. But it’s bigger than 1 and around two, that’s mean the working capital is positive. In the last four years, the current ratio has grown of 18,13%. b) Quick ratio Abercrombie and Fitch has $1,91 of Quick Assets to meet $705 of its Current Liability. It’s mean the quick ratio is 1.30, then Abercrombie and Fithc has a better ration tjan the industry, which is 1.10. The company will have no problem to borrow from the bank. In the last four years, the quick ratio has grown of 22,23%.

Current ratio a liquidity ratio calculated as current asset divided by current liabilities. With the proven stats Wal-Mart, current ratio improved from 2014-2015 but it also deteriorated from 2015to 2016. The quick ratio is the liquidity ratio calculated cash plus short-term marketable investments plus receivable divided by current liabilities, Wal-Mart did improve from 2014 to 2015 not considering it didn’t reach the same level as 2014. Cash ratio a liquidity ratio calculated as cash plus short-term marketable investments divided by the current liabilities. Even though the cash ratio improved from 2014 to 2015 but it still did a slight deteriorated from the year 2015 to 2016.